"Going green" has become a popular catch phrase. This phenomenon is fueled by the current administration, and the agenda is clear.
What are you doing to go green?
The basic premise is to rebuild or replace products with new materials that embrace sustainability principles which will reduce the overall carbon footprint of the building on the environment.
The most common green program currently implemented is green building restoration. Examples include buildings that upgrade to green by recycling, improving heating and cooling systems, conserving water, and actively managing indoor air quality. In addition, the use of non-toxic paints, low-flow toilets and LED (light-emitting diode) lights help a building qualify as green.
The cost of constructing a green building is higher than a standard building, but in the long run, going green will be more cost effective. The initial cost of constructing a green building is estimated to be approximately 3 percent above a standard building, according to California's Sustainable Building Task Force. However, studies by the U.S. Green Building Council provide evidence that a green building will use about 30 percent less energy than a standard building and around 30-50 percent less water consumption.
Additionally, it has been shown that buildings are responsible for 38 percent of U.S. greenhouse gas emissions, according to the USGBC. In New York City for example, 80 percent of the carbon emissions came directly from energy consumption associated with buildings, according to statistics cited by city government officials in December. 2009.
The good news is that current technologies can reduce these emissions by 50 percent, according to a study by KPMG. The Leadership in Energy and Design (LEED) program is a way to address the current energy use problem.
Insurance companies are starting to pay attention. Insurance policies can provide building owners with new options to transfer risk–responding to the current needs of "going green." The insurance marketplace is offering products to insure environmentally sustainable projects, which in turn can lead to reductions in greenhouse gas emissions.
There are a growing number of insurance carriers providing different coverage and forms for green buildings. There are clearly very unique exposures associated with insuring green buildings and the carriers recognize the importance of addressing the exposures correctly.
Coverage responds to covered partial and total losses for both LEED and non-LEED certified buildings. The policies allow for the rebuilding of a building to higher environmental standards after a partial or total loss. (See related text box, "Definitions," for a description of the U.S. GBC's LEED guidelines.)
Some carriers will pay to upgrade the building to LEED-certified status by hiring a LEED-certified professional, as well as the upgrade of building systems and building materials such as roofing, heating and cooling systems, plumbing, and appliances.
There are also carriers that are currently going beyond upgrades due to loss and are offering upfront premium credits and discounts for insurance coverage for LEED-certified buildings. The shift to support existing green buildings is a proactive way to help support the green initiative.
Carriers are expanding these credits beyond commercial buildings and are offering discounts to residential buildings as well. Some environmental insurers are offering 10 percent discounts on the traditional pollution legal liability insurance for LEED-certified buildings.
Insurance carriers understand that there are a variety of exposures during a building's lifecycle–from the construction phase all the way through the operational stage. The goal is to provide the consumer with the means to be socially responsible while rebuilding and construing the property in a cost-effective and environmentally safe manner.
Green policies will support the rebuilding or upgrading of a covered loss to comply with green standards. Basically, if there is a loss or damage on a covered property, the carrier will replace the materials with the green equivalent, thus rebuilding to green standards and LEED certified.
Each carrier has different risk tolerance for environmental exposures. The agent or broker would have to master a lot of information to effectively place environmental coverage for green or LEED buildings. However, it may not be efficient or even desirable for them to do so. Most agents are generalists and are more effective working with the right partner instead of trying to be experts in everything.
Instead of struggling to identify carriers and understand their proprietary forms, the agent or broker can depend on the specialty wholesaler's expertise to help build the right policy at the right price for the client.
No matter what resources are used and which carriers write coverage for going green, the agent must make sure clients are aware of their specific environmental coverage needs and are offered coverage terms to address them. It is more important than ever for agents to work with specialized E&S brokers with broad environmental expertise to ensure their clients exposures to carbon emissions and going green are properly assessed and presented to insurance carriers.
The importance of green buildings will continue to increase, as they are one of the essential components in a global plan to achieve a reduction of greenhouse gas emissions. By committing to upgrading buildings, insurers recognize the importance of green buildings, both to the environment and to their overall assessment of risk and property values.
Gina Jones is director of Environmental Programs at Burns and Wilcox. She may be reached at at GAJones@burns-wilcox.com
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